Japan adopts stimulus plan to aid recovery

Tokyo -- Japan is taking aggressive action to lift consumer prices, encourage borrowing and help pull the world's third-largest economy out of a long slump.

Like the U.S. Federal Reserve, Japan's central bank plans to flood its financial system with more money -- its most far-reaching step to date to get consumers and companies to borrow and spend.

The Bank of Japan's action will also drive down the value of the yen. A cheaper currency will make Japanese goods -- from Toyota cars to Sony TVs -- less costly for Americans and other foreigners.

And it will make U.S. and other exports more expensive in Japan.

Dan Akerson, CEO of General Motors Co., told CNBC that he feared the Bank of Japan's policies would give Japanese automakers a price advantage over GM in the United States.

"They're an export economy," he said. "You have to be suspicious of what they're doing and why."

Currency changes take a while to affect sales, Akerson said. Regardless, he said auto companies have to compete on fundamentals such as reliability and quality.

"I don't think a company like General Motors should make excuses about foreign currency," he said. "We've got to compete."

A weaker yen makes it cheaper for Japanese companies to produce vehicles, which could give Japanese competitors a pricing advantage.

"At any one point in time, as long as there is not a systemic shift, we can withstand anything," Akerson said of yen and currency fluctuations.

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Many economists say the world will benefit from a financially healthier Japan: A faster-growing Japanese economy will buy more products and services from the United States, China and Europe, helping boost their economies.

"We could see some faster and sustainable growth now in Japan," said Bernard Baumohl, chief global economist at the Economic Outlook Group. "That will obviously help the global economy." Eswar Prasad, an economist at Cornell University, cautioned that Japan needs more than easy-money policies to repair its economy. It needs to reduce its debts and reform policies that protect weak firms from competition and undercut the country's productivity.

"Japan would no longer be a drag on the global economic recovery if it had stronger domestic demand and positive inflation," Prasad said.

"However, it is far from clear that the Bank of Japan's actions will be able to deliver these positive outcomes in the absence of broader structural reforms that are essential to revive Japan's productivity and competitiveness. ''

In its announcement, the Bank of Japan said it plans to buy more than $530 billion a year in government bonds. BOJ governor Haruhiko Kuroda described the scale of monetary stimulus as "large beyond reason," but said the inflation target would remain out of reach if the central bank stuck to incremental steps.